European stocks end bumpy day with gains

LONDON (MarketWatch)—European stock markets ended a highly volatile trading day on an upbeat note, while Spanish equities closed lower after the government released its much anticipated 2013 budget with little surprises.

The Stoxx Europe 600 index
SXXP, +0.03%
added 0.3% to 271.65, claiming back some losses from Wednesday, when the benchmark tumbled 1.8% on concerns over Spain and Greece.

Reuters

Marta Uriarte wraps herself up in a sleeping bag at the beginning of her hunger strike in protest against her forthcoming eviction, after failing to pay the mortgage on her house, in front of the Bilbao Bizkaia Kutxa (BBK) bank in central Bilbao, Spain.

“It’s a correction from yesterday. There is nothing fundamental that is driving the moves,” said Tobias Blattner, European economist at Daiwa Capital Markets.

Spain stole the limelight on Thursday, as the government, three hours later than expected, announced its budget for next year and outlined economic reforms. The government said it plans to tap 3 billion euros ($ 3.86 billion) from its pension reserves to cover some needs in the Treasury, and that its focus is more on spending cuts than tax hikes. Budget minister Cristobal Montoro Romero said the government expects to meet its 2012 deficit target of 6.3% and is targeting a 4.5% deficit in 2013. See: Spain gov't: More spending cuts than tax hikes.

In recent days Spaniards have hit the streets of Madrid in protests over budget cuts, while international financial markets have speculated over whether the administration will submit an official request for aid.

“As it stands this budget lacks any credibility and the question is whether these measures are enough to ward off any additional conditionality the [European Central Bank] may require under an [outright monetary transaction] program, which they are more than likely going to have to ask for,” said Ioan Smith, managing director at Knight Capital Europe, in a note after the release.

“Despite assurances we still contend that Spain will struggle to meet its deficit this year and the fact that the budget is based on unchanged economic forecasts means that immediately lacks any credibility,” he said.

The yield on 10-year Spanish government bonds
ES:10YR_ESP
surged above 6% for the first in almost three weeks on Wednesday, but was down 12 basis points to 5.91% on Thursday, according to electronic trading platform Tradeweb.

Elsewhere, The Wall Street Journal reported Thursday that leaders of Greece’s three-party coalition have agreed to comply with the bulk of austerity measures required by international creditors in exchange for additional loans from the Greek bailout package. See: Greek coalition agrees on bulk of cuts.

U.S. data

In the U.S., a batch of data painted a mixed picture of the economy and weighed on trading sentiment. Initial jobless claims from last week fell by 26,000 to 359,000, marking the lowest level since late July and beating analysts’ expectations. See: U.S. jobless claims fall 26,000 to 359,000.

“Today’s data were a narrow reflection of what we’ve seen over the last couple of months and strengthened the case for the [U.S. Federal Reserve] to launch further [quantitative easing],” Blattner from Daiwa Capital Markets said.

“We need to see the effect on data coming in October. Market participants expect the Fed to extend the program to also involve the buying of Treasurys and not just [mortgage-backed securities],” he said.

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